Regulators probe chocolate price fixing claims

Janet Frankston Lorin

Published
7:00 pm EST, Wednesday, February 13, 2008

NEWARK, N.J. -- If you feel your Valentine's Day chocolates are not such a sweet deal this year, you're not alone. Regulators are investigating price fixing among candy makers in at least three different countries.

In the last week, the German Federal Cartel Office raided the offices of seven of leading chocolate companies including Mars Inc., Kraft Foods Inc. and Nestle SA searching for documents. Three months ago, Canada's Competition Bureau searched the offices of several companies, many of the same ones as in Germany.

The Canadian investigation sparked several American lawsuits accusing the world's biggest chocolate companies of violating antitrust laws.

The U.S. Department of Justice declined to confirm it is investigating, yet several companies confirmed receiving inquiries.

The retailers and consumers who filed suit allege the companies needed to fix prices because while the costs for raw materials such as milk and cacao have increased, sales of chocolate in the U.S. have remained relatively flat in recent years. Chocolate manufacturer sales grew by 2.9 percent in 2007 to $16.3 billion, according to the National Confectioners Association.

The cases detail how informants kept letters for years, showing that Canadian executives exchanged confidential pricing information dating back to 2002 through e-mail, phone and meetings.

Marilyne Nahum, a spokeswoman for the Competition Bureau, declined to discuss the details of the ongoing investigation and said no charges have been filed. The companies could face criminal conspiracy charges, which carry penalties of up to $10 million Canadian dollars and/or five years in prison.

According to affidavits submitted in an Ontario court to obtain search warrants, top executives at Hershey Co., Mars and Nestle met secretly in coffee shops, restaurants and conventions to set prices. The volume of commerce involved is potentially in the billions of dollars per year.

The German Cartel Office has said it suspected the companies had conspired with one another to raise their prices even higher than the increase in the price of raw materials, such as cocoa and nuts, would have demanded. If the office finds evidence of collaboration, the companies face possible fines of up to 10 percent of their annual income.

Several of the companies say they are cooperating with investigators.

Mars North America was contacted in early December by the U.S. Justice Department about a preliminary inquiry concerning pricing practices in the U.S. chocolate confectionery industry, said spokeswoman Alice Nathanson.

"We will fully cooperate with any investigation that may be launched," she said.

She also confirmed German officials visited the company's offices in Viersen last week. In Canada, Mars continues to cooperate the Canadian Competition Bureau's investigation.

"As the bureau has stated, it has not reached any conclusions of wrongdoing and is still at the investigative stage," Nathanson said.

Edie Burge, a spokeswoman for Nestle USA, said the company "is aware of a preliminary investigation into marketing practices in the U.S. chocolate industry being conducted by the Department of Justice," and will cooperate with any investigation, but has not been contacted.

Yet in addition to the government investigations, the companies are facing lawsuits from a gaggle of plaintiffs.

A New Jersey confectionery company filed the first lawsuit in late December, charging price fixing by an international cartel of companies -- Hershey and Mars, the leading chocolate companies in the U.S., along with other companies such as Nestle and Cadbury Schweppes PLC.

The confectioners claim that a cartel raised prices three times since 2003 and planned another hike for 2008.

German officials said the companies raided this week had agreed at the beginning of the year to raise prices.

At least 45 similar suits have been filed in eight states on behalf of more than 50 consumers and companies like CNS Confectionery Products of Bayonne, N.J.